SEBI to Review F&O, Short-selling: Securities and Exchange Board of India (SEBI) Chairman Tuhin Kant Pandey on Friday announced that the market regulator will soon constitute a working group for a comprehensive review of the ‘short selling’ and securities lending (SLB) framework.
What is ‘short selling’?
‘Short selling’ is a trading strategy in the stock market, in which the investor tries to make profit on the possibility of a fall in the price of a share. That is, if someone thinks that the shares of a company will go down, then he borrows the shares and sells them and later buys them back at a lower price. Nasebi started the framework of ‘short selling’ in 2007, which remains almost unchanged till today.
What is SLB system?
Under the SLB system, investors or institutions can lend the shares held in their demat accounts to other investors for a fee. This transaction is done through the stock exchange platform. The Clearing Corporation provides settlement security and guarantee in this process.
Borrowed shares are often used to protect against short selling or settlement failures. According to experts, SLB provides an opportunity to investors to earn additional income from their idle shares and also helps in increasing the liquidity and efficiency of the market.
Why is review important?
The ‘short selling’ framework has not been updated since 2007. The SLB system, which was launched in 2008, is not considered fully in line with global standards despite being revised several times. Therefore SEBI now wants to thoroughly re-evaluate both these systems.
Tuhin Kant Pandey said that a comprehensive review of ‘stockbroker’ and mutual fund rules is already underway. SEBI is focusing on protecting the interests of investors and increasing market transparency. On the question asked about the outflow of Foreign Portfolio Investors (FPI), SEBI Chairman said – FPI has very strong faith in India’s growth story. Global investors remain confident in India’s economy and its long-term growth.
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